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April 24, 2003
Nortel Networks Reports Results for First Quarter of 2003
- Revenues: US$2.40 billion, down sequentially approximately 5%
- Net earnings of US$54 million; US$0.01 per common share
- Strong cash position of US$4.0 billion, up sequentially over US$100 million
TORONTO – Nortel Networks* Corporation [NYSE/TSX: NT] today reported results for the first quarter of 2003 prepared in accordance with United States generally accepted accounting principles, “GAAP”. Commencing with this presentation of its first quarter 2003 results, Nortel Networks will no longer provide pro forma earnings (which is a non-GAAP financial measure).
First Quarter 2003 Results
Revenues were US$2.40 billion for the first quarter of 2003 compared to US$2.91 billion in the same period in 2002. Nortel Networks reported net earnings in the first quarter of 2003 of US$54 million, or US$0.01 per common share, compared to a net loss of US$841 million, or US$0.26 per common share, in the first quarter of 2002.
Net earnings in the quarter included US$190 million of net earnings from discontinued operations – net of tax, US$134 million of special charges for restructuring and an aggregate US$36 million (net of tax) for the amortization of acquired technology and deferred stock option compensation associated with acquisitions. The company’s reported results also included approximately US$80 million of favorable impacts associated with reductions in accruals principally related to: the wind-down of integration activities of previously acquired companies, operations originally structured as joint ventures, and miscellaneous tax matters; which were more than offset by costs related to the return to profitability bonus plan for employees and stock-based compensation expense.
“I am extremely pleased to have achieved profitability in the first quarter of 2003 and reached our goal one quarter early,” said Frank Dunn, president and chief executive officer, Nortel Networks. “We continue to successfully engage our customers and leverage our technology leadership and portfolio to deliver solutions that meet their needs. Moving forward, we will continue to drive to improve our market position and our financial performance. Our focus remains on delivering the multimedia services and network infrastructure solutions that will position our customers to grow their revenue and reduce their overall costs.”
Highlights of some of our recent announcements across our focus areas included:
Wireless Data
- T-Mobile International to implement Univity* GPRS wireless packet core to allow easy movement from GPRS to UMTS and prevent operator ‘stranded investment’;
- GSM and GPRS wireless data network expansion for China Mobile in Hebei province, which is expected to increase network capacity by 1.8 million subscribers and to support the migration to wireless data services;
- Commercial launch of CDMA2000 1xEV-DO, beginning in the summer of 2003, of Verizon Wireless network in San Diego, to support the delivery of wireless data applications such as video streaming, wireless gaming, and multimedia messaging;
- Kapsch CarrierCom to deploy GSM-Railway (GSM-R) network, confirming Nortel Networks continued leadership position in the GSM-R market; and
- Wireless LAN strategy and portfolio launch for enterprises and wireless carriers, in support of the delivery of a seamless customer experience across private and public wireless networks.
Voice over Packet
- First deployment of Passport* 20000 in Europe, Connex to deploy multiservice switches in backbone network in support of 2G to 3G packetized infrastructure migration;
- Deployment of Packet Voice network by Contactel, the first Czech Republic provider to operate a softswitch in the public telephone network; and
- Five-year frame agreement with Telecom Egypt for the expansion and modernization of Egypt’s national wireline and wireless network.
Multimedia Services and Applications
- Telefónica Empresas to deploy nationwide multiservice network to enable delivery of new IP, Multiprotocol Label Switching services (MPLS) to corporate customers throughout Brazil;
- Deployment of Succession* Centrex IP with financial institution First Data Corp., enabling First Data to accommodate large increases in call centre traffic, and improve customer service; and
- Launch of Alteon* multi-application switching solution, to enable application-intelligent traffic management and integrated application support.
Broadband Networking
- Ohio State University to deploy Nortel Networks Optical Ethernet solution enabling new educational applications previously too expensive or difficult to implement over legacy networking infrastructures;
- National optical transmission backbone to be deployed by China Netcom, which will include the first planned deployment of OPTera* Connect HDX Optical Switch in China; and
- Deployment of routing switches and optical equipment by Spanish cable operator Retecal to upgrade data network and increase capacity.
Security/Virtual Private Networking (VPN)
- China Netcom national multiservice backbone contract enabling 110 city IP-VPN and other data services for government and enterprise customers; and
- Business Communications Manager (BCM) IP-PBX named “Best-In-Test” by Miercom on behalf of Business Communications Review, earning this distinction based on voice-quality, manageability and advanced features.
“I am very pleased again this quarter with our cash position of US$4.0 billion and our focus on cash management,” said Doug Beatty, chief financial officer, Nortel Networks. “The cash outflow from continuing operations of approximately US$80 million included cash outflows for restructuring of US$190 million. Our overall net cash inflow included proceeds of approximately US$250 million from sale and settlement activities within discontinued operations.”
Outlook
The company continues to expect the overall telecommunications equipment market to be down modestly in 2003 compared to 2002. Given the ongoing economic and geopolitical uncertainty, customers continue to spend cautiously. As a result, the company currently expects the capital spending levels in the second quarter of 2003 to be similar to the first quarter of 2003. The company is not providing any specific revenue or earnings guidance at this time.
Breakdown of First Quarter 2003 Revenues
Compared to the fourth quarter of 2002, Wireless Networks segment revenues decreased 6 percent, reflecting considerable declines in Asia and a decline in the United States, which were partially offset by a significant increase in the Europe, Middle East and Africa region (“EMEA”) and considerable increases in the Caribbean and Latin America region (“CALA”) and in Canada. Enterprise Networks segment revenues decreased 6 percent, reflecting a decrease across all regions except Asia, which increased. Wireline Networks segment revenues increased 11 percent, primarily reflecting considerable increases in the United States and Canada, which were partially offset by a substantial decrease in Asia. Optical Networks segment revenues decreased 22 percent, primarily reflecting considerable decreases in the United States and Canada, and a decrease in EMEA.
Compared to the first quarter of 2002, Wireless Networks segment revenues decreased 16 percent, Enterprise Networks segment revenues decreased 9 percent, Wireline Networks segment revenues decreased 18 percent, and Optical Networks segment revenues decreased 33 percent, generally representing significant decreases across all geographic regions.
Geographic revenues for the first quarter of 2003 compared to fourth quarter of 2002 decreased 3 percent in the United States and 9 percent in Canada, with EMEA essentially flat and all other regions down 16 percent. Compared to the first quarter of 2002, revenues decreased 14 percent in the United States, 41 percent in Canada, 11 percent in EMEA and 25 percent in all other regions.
Gross margin
Gross margin was 42.9 percent of sales in the first quarter of 2003, up from 39.3 percent in the fourth quarter of 2002. This improvement reflected the benefits from the restructuring programs, very strong Wireless Networks segment gross margins in the quarter and a relatively stronger performance from the Optical Networks segment.
Expenses
Selling, general and administrative expenses were US$487 million in the first quarter of 2003, compared to US$744 million for the same period in 2002 and essentially flat compared to the fourth quarter of 2002.
Research and development (“R&D”) expenses were US$489 million in the first quarter of 2003, compared to US$595 million for the same period in 2002 and essentially flat compared to the fourth quarter of 2002.
Other income (expenses) - net was US$50 million income for the first quarter of 2003, which primarily included a payment received from a settlement related to intellectual property use and reductions in accruals principally related to: the wind-down of integration activities of previously acquired companies, operations originally structured as joint ventures, and miscellaneous tax matters; which were partially offset by foreign exchange and investment losses.
Discontinued operations
The company reported net earnings from discontinued operations of US$190 million, which primarily reflected a gain in the amount of US$101 million from the disposition of shares and a membership interest in certain Arris Group Inc. companies and a gain in the amount of US$95 million from the settlement of certain trade and customer finance receivables.
Nortel Networks is an industry leader and innovator focused on transforming how the world communicates and exchanges information. The company is supplying its service provider and enterprise customers with communications technology and infrastructure to enable value-added IP data, voice and multimedia services spanning Wireless Networks, Enterprise Networks, Wireline Networks, and Optical Networks. As a global company, Nortel Networks does business in more than 150 countries. This press release and more information about Nortel Networks can be found on the Web at www.nortelnetworks.com.
Certain information included in this press release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors which could cause results or events to differ from current expectations include, among other things: the severity and duration of the industry adjustment; the sufficiency of our restructuring activities, including the potential for higher actual costs to be incurred in connection with restructuring actions compared to the estimated costs of such actions; fluctuations in operating results and general industry, economic and market conditions and growth rates; the ability to recruit and retain qualified employees; fluctuations in cash flow; the level of outstanding debt and our current debt ratings; the ability to meet the financial covenant in our credit facilities; the use of cash collateral to support our normal course business activities; the dependence on our subsidiaries for funding; the impact of our defined benefit plans and our deferred tax assets on our results of operations, cash flows and compliance with our financial covenant; the ability to make acquisitions and/or integrate the operations and technologies of acquired businesses in an effective manner; the impact of rapid technological and market change; the impact of price and product competition; international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; the impact of rationalization in the telecommunications industry; the dependence on new product development; the uncertainties of the Internet; the impact of the credit risks of our customers and the impact of customer financing and commitments; stock market volatility; the impact of the New York Stock Exchange minimum listing requirements and the proposed consolidation of our common shares; the impact of acceleration or early settlement of our purchase contracts; the impact of supply and outsourcing contracts that contain delivery and installation provisions, which, if not met, could result in the payment of substantial penalties or liquidated damages; the ability to obtain timely, adequate and reasonably priced component parts from suppliers and internal manufacturing capacity; the future success of our strategic alliances; and the adverse resolution of litigation. For additional information with respect to certain of these and other factors, see the reports filed by Nortel Networks with the United States Securities and Exchange Commission. Unless otherwise required by applicable securities laws, Nortel Networks disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
* Nortel Networks, the Nortel Networks logo, the Globemark, Alteon, OPTera, Passport, Univity, and Succession are trademarks of Nortel Networks.
Nortel Networks will host a teleconference/audio webcast to discuss Q1 2003 Results.
TIME: 8:15 AM – 9:15 AM EDT on Thursday, April 24, 2003
To participate, please call the following at least 15 minutes prior to the start of the event.
Teleconference:
North America: (888) 211-4395
International: (212) 231-6007
Webcast: www.nortelnetworks.com/1q2003
Replay:
(Available one hour after the conference until 11:59 pm EDT, May 7, 2003)
North America: 800-383-0935
Passcode: 21107420#
International: 402-530-5545
Passcode: 21107420#
Webcast: www.nortelnetworks.com/1q2003
Contact for Press and Analysts:
Investors:
Nortel Networks
(888) 901-7286
(905) 863-6049
investor@nortel.com
Media:
Tina Warren
Nortel Networks
(905) 863-4702
tinawarr@nortel.com
Additional Media & Analyst Contacts
 Consolidated Balance Sheet (13 KB)
Consolidated Cash Flow (13 KB)
Consolidated Results (14 KB)
Supplementary Information (12 KB)
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